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<ul><li>Factors like offshoring, digitisation and decarbonisation are set to drive India’s ascent as the world’s third largest economy. </li><li>India's per-capita energy consumption is likely to rise 60% and most of this demand will be met by renewable energy. </li><li>The number of households earning in excess of $35,000 a year is likely to rise fivefold in the coming decade to over 25 million.</li></ul>India could well be on its way to becoming the world’s third largest economy and stock market if <keyword id="48670" type="General" weightage="50" keywordseo="morgan-stanley" source="Orion">Morgan Stanley</keyword>’s equity strategists and economists are to be believed. In its report titled ‘Why This Is India’s Decade’, the global investment bank cites several factors like the rise in offshoring, investments in manufacturing, energy transition and the country’s digital infrastructure would make this a reality. Morgan Stanley, has remained bullish on the India story for years now, unlike some other global banks that Modi-fied their view on India after the taper tantrum of 2013 and the subsequent meltdown in markets. Over the years, Morgan Stanley’s celebrated strategist <keyword id="44540" type="General" weightage="50" keywordseo="ridham-desai" source="Orion">Ridham Desai</keyword> has steadfast in his analysis on the Next India. Many of his projections have played out like the one on retail investors leading the charge in Indian equities. After two years of the pandemic, during which foundations of the future have been laid, the theme has now shifted to New India. The strategy report titled ‘Why This is India’s Decade’ by Morgan Stanley says: “Our Next India thematic looked at the trends and policies shaping the future of India's economy. As those trends have largely come to pass, with this report we shift from The Next India to The New India thematic to mark this transition. The four global trends of Demographics, Digitalization, Decarbonization and Deglobalization are favouring New India.” The first factor that will continue to benefit India is offshoring. India has been the back office for the world for more than two decades. But the pandemic has only accelerated the pace of this trend, as more companies look at offshoring various functions to India. In a multi-polar world, now even manufacturing is slated to shift India. Morgan Stanley has spent considerable time in its report on why India would rise in the world economy. Digitisation and the India stack is a story that is not very often seen in its entirety. The India Stack, digital payments using Unified Payments Interface that can handle large volumes at a small cost is unique to India. The digital revolution will transform how India lends, pays and insures itself. Says Morgan Stanley, “The digital revolution has already changed the way India handles documents, invests, and makes payments, and it is also set to alter the way India lends, spends and insures.” <div type="image" title="Ridham Desai, strategist, Morgan Stanley" msid="95256603" hostid="261" caption="&amp;lt;p&amp;gt;Ridham Desai, strategist, Morgan Stanley&amp;lt;/p&amp;gt;"></div> Clean energy and the energy transition are sectors where India is keen to take a lead with Indian behemoths Reliance Industries and Adani Group taking big strides. While the world has seen energy transitions before, what makes India unique is that the consumption of energy and its sources are undergoing a sharp shift. Since consumption of energy is still rising in India, legacy energy assets will not become redundant overnight. These assets will continue to be in use even as greener sources start replacing two-thirds of the demand. Explains MS: “India's energy needs are still growing, and, therefore, legacy capacity using fossil fuels will not be destroyed as it transitions to a higher share of renewables. India's per-capita energy consumption is likely to rise 60%, on our estimates, to about 1450 Watts per day in the coming decade, with two-thirds of the incremental supply coming from renewable sources.” This shift will lead to a virtuous cycle and reduce dependence on imported fuel, risks of price volatility and inflationary pressures. The future definitely looks brighter for India as it makes this shift, leading to better living conditions. No prizes for guessing that a combination of these factors would be good for consumer demand and equity markets. Indians are expected to spend more on discretionary spends, as per-capita GDP has crossed the important $2,000 mark. According to MS, “India's income pyramid offers unique breadth of consumption, in our view, with the top end spending like the richest in the world and the bottom end still relatively poor. The number of households earning in excess of $35,000/year is likely to rise fivefold in the coming decade, to over 25 million. The implications are 1) GDP is likely to cross $7.5 trillion by 2031, more than double the current level, 2) a discretionary consumption boom and 3) 11% annual compounding of market capitalization to $10 trn in the coming decade.” The only risk to this Goldilocks assessment is the risk of a prolonged recession globally, adverse geopolitical risks and an unstable government at the centre in India. SEE ALSO <a href="https://www.businessinsider.in/business/corporates/news/gautam-adani-puts-in-place-plan-to-take-group-valuation-to-1-trillion/articleshow/94857619.cms">Gautam Adani puts in place plan to take Group valuation to $1 trillion</a> <a href="https://www.businessinsider.in/business/corporates/news/5g-rollout-to-give-business-a-fillip-says-airtel-ceo-gopal-vittal/articleshow/95230944.cms">5G rollout to give business a fillip, says Airtel CEO Gopal Vittal</a>

This is India’s decade and GDP is likely to cross $7.5 trillion by 2031, says Morgan Stanley

<ul><li>Between 2017-end and March 2020, the SMID indices were down more than 40% relative to the equity benchmark Sensex.</li><li>Morgan Stanley now believes that SMID stocks are now all set to rally on the back of a growth recovery and attractive valuations.</li><li>Aditya Birla Capital, CG Consumer, JustDial and Prestige Estates are some of the stocks that Morgan Stanley is overweight on. </li></ul>Morgan Stanley’s Ridham Desai is bullish on small and mid-cap stocks. In a recent note, he said that after 30 months of struggle, Indian mid and small-cap stocks are poised for outperformance on the back of growth recovery and attractive valuations. The Morgan Stanley report dated August 18 said the small and mid-cap (SMID) stocks went into a prolonged phase of underperformance after peaking in early January 2018. Between the end of 2017 and March 2020, the SMID indices were down more than 40% relative to the equity benchmark Sensex due to various reasons such as growth deceleration and relative valuations. “The COVID-19 related lockdown did not help matters but has marked a floor on the cohort’s relative performance as a forward-looking stock market is possibly anticipating better growth. With monetary aggregates normalizing and significant policy action underway with a corporate tax cut last September, we think growth is set to turn,” the report said. Here’s the list of stocks that Morgan Stanley is betting on: <table style="border-width: initial; border-style: none;"></colgroup><tbody><tr><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Stocks </td><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">YTD Gain % </td></tr><tr><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Aditya Birla Capital </td><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">-38% </td></tr><tr><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Amara Raja Batteries </td><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">2% </td></tr><tr><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Apollo Hospitals </td><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">17% </td></tr><tr><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Bharat Electronics </td><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">11% </td></tr><tr><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">CG Consumer </td><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">9% </td></tr><tr><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Exide Industries </td><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">9% </td></tr><tr><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Gujarat Gas </td><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">32% </td></tr><tr><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Gujarat State Petronet </td><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">-7% </td></tr><tr><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Indraprastha Gas </td><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">-4% </td></tr><tr><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Jindal Steel &amp; Power </td><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">39.40% </td></tr><tr><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Jubilant FoodWorks </td><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">18% </td></tr><tr><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Just Dial </td><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">-31% </td></tr><tr><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Mahindra &amp; Mahindra Financial Services </td><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">-31% </td></tr><tr><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">MphasiS </td><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">30% </td></tr><tr><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Multi Commodity Exchange of India </td><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">46% </td></tr><tr><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Narayana Hrudayalaya </td><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">12% </td></tr><tr><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">PNB Housing Finance </td><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">35% </td></tr><tr><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Prestige Estates Projects </td><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">25% </td></tr><tr><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Shriram City Union Finance </td><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">30% </td></tr><tr><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Shriram Transport Finance Co </td><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">40% </td></tr><tr><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Sobha Developers </td><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">35% </td></tr><tr><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Tata Power Co </td><td style="border-left:solid #000000 0.9960975000000001pt;border-right:solid #000000 0.9960975000000001pt;border-bottom:solid #000000 0.9960975000000001pt;border-top:solid #000000 0.9960975000000001pt;vertical-align:bottom;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">9% </td></tr></tbody></table>Source: Morgan Stanley report dated August 18 Morgan Stanley notes that smaller firms are likely to benefit more due to their operating and financial leverage. SMID valuations are looking attractive relative to GDP and money supply, setting the stage for outperformance versus large-cap stocks in the coming months. They are overweight on 22 stocks in the small and mid-cap universe, with a market cap of around US$3.5 billion. Morgan Stanley has also sounded a word of caution on three factors that pose major risks to the outperformance of broader markets — COVID-19 pandemic, lack of structural reforms, and the risk in the financial system. SEE ALSO: <a href="https://www.businessinsider.in/stock-market/news/ruchi-soya-shares-muthoot-finance-shares-irctc-shares-hal-shares-tata-power-shares-yes-bank-shares-top-stock-movers-on-dalal-street/articleshow/77647940.cms" data-type="tilCustomLink">Top stock movers on Dalal Street today —Ruchi Soya, Muthoot Finance, IRCTC, HAL, Tata Power, Yes Bank and more</a> <a href="https://www.businessinsider.in/business/auto/news/kia-sonet-suv-pre-booking-starts-today-checkout-price-images-specifications-and-other-details/articleshow/77649221.cms" data-type="tilCustomLink">Kia Sonet pre-booking starts today— Here’s all you need to know about price, features and other details</a>

These are small and mid-cap stocks that Morgan Stanley’s Ridham Desai is betting on

Ridham Desai, Head of India Equity Research &amp; India Equity Strategist at <a href="http://www.businessinsider.in/searchresult.cms?query=Morgan+Stanley&amp;sortorder=effectivedate">Morgan Stanley</a>, feels that the domestic equity market ended on a flat note in 2016 but 2017 looks better for equities as an asset class compared with other asset classes. 
 
Desai also said that there can be a shift in investor preference from bonds to equities. The rule, he feels, is that the bonds become less attractive when interest rates climb and inflation expectations pick up, which could be the situation in the US in 2017. 
 
"I see a case for shift in asset allocation from bonds to equities," Desai told ETNow. 
 
He expects falling share on <a href="http://www.businessinsider.in/searchresult.cms?query=emerging+markets&amp;sortorder=effectivedate">emerging markets</a> (EMs), but said India has biggest overweight position in his scheme of things. 
 
He also sees up to 15% returns from Indian equities in 2017, but investors need to look at stocks with right valuations before taking a call. Managing risk will be important. More importantly, investors should buy stocks where valuations are attractive, he said. 
 Another important event, that investors are betting on is the <keyword id="6360189" type="COMPANY" weightage="100" keywordseo="Union-Budget">Union Budget</keyword>, 2017-18: A populist budget may scare the market, but it is difficult to gauge the impact, Desai said. 
 
Due to the demonetisation drive, the underlying demand conditions are very good, but there has been a temporary lull. However, the demand is expected to come back sooner than later. 
 
When asked what will work in 2017, Desai said that the golden rule is: the point of maximum return equals the point of maximum uncertainty and vice versa. 
 
"You cannot make money in stocks unless there is uncertainty," said Desai. If everything becomes certain, then stocks are priced fully. The market is always forward looking and we saw that in December, when growth stocks actually did very well. I think the market is looking at growth turning around. If growth stocks become reasonably priced, they will be bought and that is exactly where we are right now," Desai told ET. 
 
He alsp said that growth stocks are looking more reasonably priced than they have been over the past two or three years and they will be purchased when valuations look attractive. 
 
He also feels that there are few things that are in favour of India right now. <a href="http://www.businessinsider.in/searchresult.cms?query=Global+growth+&amp;sortorder=effectivedate">Global growth </a>seems to have stabilised, which was working against us for the past two years. That should provide some tailwind to growth. 
 
"Domestic demand is looking better. Keeping aside the temporary blip from the currency exchange programme, the worst will be behind us soon. So domestic demand will recover, but private capex may still remain weak for some more time," Desai told ET.

If Union Budget is populist, it will hurt Indian equity returns: Expert

In the wake of the financial crisis, <keyword id="3658" type="COUNTRY" weightage="60" keywordseo="India">India</keyword> decided to reduce public savings in favor of better growth.
"The collateral damage has been persistent consumer <keyword id="22195" type="COMPANY" weightage="60" keywordseo="Inflation">inflation</keyword> and declining corporate savings or profit share in GDP," wrote Morgan Stanley's Ridham Desai.
And now five years on, India's <keyword id="44647" type="ORGANIZATION" weightage="60" keywordseo="debt">debt</keyword> load has shifted from the public sector to the private sector.
It's the exact opposite of what has taken place in developed markets, where public sector balance sheets grew massively while the corporate sector delevered.
Desai calls this massive change the "Great Debt Transfer."
"Persistent inflation has deflated public debt relative to GDP – but it has also punctured corporate profits (and, thus equity), causing corporate financial leverage to rise," Desai writes in a new note to clients.
And the fall in public savings has dogged corporate profits.
<div class="image-container" style="width:800px"><div class="image">Morgan Stanley</div></div>
Here's the shift from public to private debt.
<div class="image-container" style="width:800px"><div class="image">Morgan Stanley</div></div>
"The world’s reserve currency is no longer interested in funding India’s external deficit (caused by the persistent fall in savings)," Desai writes. "Thus, it becomes imperative for India to reduce this deficit."
Like in 1998 in India, real rates need to be held high at the expense of growth, Desai argues.
<div class="image-container" style="width:800px"><div class="image">Morgan Stanley</div></div>
"India’s macro construct threatens its relative gains against its most relevant peer group (the BRICs) in the 18 months preceding mid-July," said Desai.

In 3 Charts, You'll See Why India's Private Sector Is Getting Crushed

The S&amp;P 500's 180% surge since the bottom in March 2009 is one of the most impressive bull market runs in world history.
However, it is no longer the strongest ongoing rally in the world.
Ever since India caught Modi fever, India's BSE Sensex index has been on a huge tear. And after Narendra Modi <a href="http://www.businessinsider.com/morgan-stanley-on-the-indian-election-2014-5">secured a huge victory</a> last week, the market only went higher.
Since March 2009, the Sensex is up 195%.
"We considered a decisive majority as probably the best scenario, or our bull case for the market," <a href="http://www.businessinsider.com/importance-of-modis-decisive-victory-2014-5">wrote Ridham Desai, Morgan Stanley's India equity strategist</a>. "This election result could herald a sea change for India's economy, which has struggled with stagflationary-type conditions over the past few years. We think the incoming government will have to de-anchor inflation, raise capital productivity, improve the investment climate and de-lever private balance sheets to engineer a new growth cycle."
<a href="http://www.advisorperspectives.com/dshort/updates/World-Market-Snapshot.php">Advisor Perspectives' Doug Short</a> charted the major world indexes since March 9, 2009. As you can see, the S&amp;P 500 and Sensex had been jockeying for position for a while. But now, the Sensex is the clear leader.
<div class="KonaFilter image-container display-table"><div><div class="image">Advisor Perspectives</div></div></div>

The S&P 500 Is No Longer Best-Performing Global Index Since March 2009

<div class="KonaFilter image-container display-table"><div><div class="image">REUTERS/StringerNarendra Modi</div></div></div>When it comes to elections, it's not about whether you win or lose. It's about whether you crushed your opponents.
And <a href="http://www.businessinsider.com/modi-wins-india-election-landslide-2014-5">according to the exit polls</a>, that's exactly what opposition leader Narendra Modi appears to have done in India's election for prime minister.
"The votes are still being counted but Narendra Modi appears to be on the cusp of a historic victory in India's election that could deliver an outright majority to his party, the BJP," wrote Capital Economics' Mark Williams and Miguel Chanco. "At the very least, the BJP-led National Democratic Alliance (NDA) will have a large majority. Either result would give a significant boost to hopes for economic reform."
<a href="http://www.businessinsider.com/who-is-narendra-modi-2014-4">Modi has been widely acknowledged</a> as the champion for economic progress, something the BRIC economy desperately needs as it struggles to achieve growth. India, however, is notorious for its inability to push through reforms. It can also be a nightmare to operate a business in the country (There's actually a magazine circulating in India called "<a href="http://www.businessinsider.com/india-magazine-bureaucracy-today-2013-5">Bureaucracy Today</a>"). As such, it was crucial that Modi win big.
"The equity and currency markets have chosen to be optimistic about policy action and growth implications in the coming 12 months," wrote Ridham Desai, Morgan Stanley's India equity strategist.
At its high of the day, <a href="http://in.reuters.com/article/2014/05/16/sensex-nifty-bjp-nda-congress-idINKBN0DW04920140516">India's Sensex index</a> exploded 6.1% to an all-time high of 25,375.63.
"We considered a decisive majority as probably the best scenario, or our bull case for the market," wrote Desai. "This election result could herald a sea change for India's economy, which has struggled with stagflationary-type conditions over the past few years. We think the incoming government will have to de-anchor inflation, raise capital productivity, improve the investment climate and de-lever private balance sheets to engineer a new growth cycle."
But it's still important to manage your expectations.
"The new government won't have everything its way since power is dispersed in India," added Williams and Chanco. "Many reforms require the cooperation of state government. Nonetheless, the new government will without a doubt be in a stronger position to push through reforms than anyone had thought likely even a week ago. The onus will now be on Mr Modi to demonstrate that investors are right to put their faith in him."
<div class="KonaFilter image-container display-table"><div><div class="image"><a href="http://www.bloomberg.com/quote/SENSEX:IND/chart">Bloomberg.com</a></div></div></div>

India's Modi Did More Than Win The Election, And The Stock Market Is Showing It

<div class="KonaFilter image-container float_right"><div class="image on-image">REUTERS/Adnan Abidi</div></div>India's general elections are underway and expected to wrap up on May 12.
With some 814 million Indians eligible to vote, Morgan Stanley's Ridham Desai and his research team have said "the world is about to witness the biggest election in history."
The elections are also slated to be the most expensive in Indian history at <a href="http://www.bloomberg.com/news/2014-04-06/india-kicks-off-world-s-biggest-ever-election-with-modi-in-lead.html">Rs. 300 billion (about $5 billion)</a>, according to Bloomberg.
The elections will have major implications not just on policy but also on the nation's growth which has languished in recent years.
"This could herald a sea change for India's economy, which has struggled with stagflationary-type conditions over the past few years," writes Desai. "We think the incoming government will have to de-anchor inflation, raise capital productivity, improve the investment climate and de-lever private balance sheets to engineer a new growth cycle."
Desai highlights five key reforms he expects the new government to push through:
<ol>
<li>"Initiate policy changes to manage wage growth in line with productivity:" "We believe that persistent high nominal wage growth even as GDP growth and job creation has collapsed can only be explained by the intervention of policy makers in the labour market."</li>
<li>"Cut fiscal deficit:" "We believe that in the first stage there is a need to reduce expenditure - to the tune of about 1% of GDP. In the second stage, as growth recovers and tax revenues to GDP improves, expenditure growth will need to be maintained at a lower level to ensure that the national fiscal deficit is brought down from the current level of close to 8% of GDP to about 5%."</li>
<li>"Improve the business environment:" "We believe that policy makers should address this comprehensively by providing a consistent policy framework in key infrastructure and industrial sectors, work on streamlining the approval process for investment projects, facilitate the rehabilitation of corporate balance sheets, provide funds for recapitalizing SOE banks to unclog their balance sheets and promote reforms to encourage more workers to move into organized forms of labour market activity."</li>
<li>"Rethink urbanization policy:" "We believe that policy makers will need to focus on creating physical infrastructure in cities and ensuring better delivery of public services to citizens."</li>
<li>"Address structural rigidities in the economy to unleash growth potential, particularly in energy and mining:" "Several supply bottlenecks, including the approval process for environment and land acquisition, and the lack of rail linkages have adversely affected the energy and mining sectors and have weighed on India's growth potential."</li>
</ol>
So far, surveys suggest that the incumbent party, the Congress party will fall and see a BJP (Bharatiya Janata Party) and NDA (National Democratic Alliance) coalition winning 230-240 seats and headed by Narendra Modi.
Modi is lauded for having driven growth in the Indian state of Gujrat. But his record is tainted with many pointing fingers at the BJP leader who failed to do anything about the bloody Hindu-Muslim riots in Gujrat in 2002, where 1,000 people were killed, though some put the figure much higher. Modi was chief minister of Gujrat at the time.
The election results are expected on May 16.

The World Is About To Witness The Biggest Election In History

<div class="KonaFilter image-container float_right"><div class="image on-image">REUTERS/Rupak De Chowdhuri </div></div>India's general elections are underway.
Voting will occur on nine dates over five weeks and will move from the North to the South. The final tallies are due May 16.
Morgan Stanley's Ridham Desai declared this would be the "<a href="http://www.businessinsider.com/india-sees-worlds-biggest-election-2014-4#ixzz2yJ3Z4NN3">biggest election</a> in world history."
While the statistics are staggering, it's quite fascinating how much care goes into making sure every last eligible voter submit their ballots.
Here are eight interesting facts about the elections that make them so impressive.
<ul>
<li>814 million Indians are eligible to vote in the 2014 general elections which are slated to be the world's biggest elections. That's 100 million more than the last general elections in 2009.</li>
<li>168 million, or about 20%, will be eligible to vote <a href="http://www.theguardian.com/world/2014/apr/07/india-general-election-brief-guide">for the first time</a>. You have to be at least 18 years old to be eligible to vote in India.</li>
<li>28,314 voters have registered as transgender. <a href="http://www.bbc.com/news/world-asia-india-26847432">India's transgender community</a> is being recognized for the first time and can vote under 'third sex' or 'others', a category that didn't exist in the last elections, according to the BBC.</li>
<li>The election will cost about $5 billion (or 300 billion rupees), according to Centre for Media Studies <a href="http://www.bloomberg.com/news/2014-04-06/india-kicks-off-world-s-biggest-ever-election-with-modi-in-lead.html">via Bloomberg.</a> That's <a href="http://timesofindia.indiatimes.com/india/Polls-to-cost-country-Rs-3500-crore-this-year/articleshow/30587202.cms">150% more</a> than the last elections in 2009.</li>
<li>919,000 polling stations have been set up with approximately 3.6 million electronic voting machines. This is because the Election Commission of India (ECI) has ruled that no one should have to travel more than 2 kilometers (about 1.2 miles) to reach a polling station, and that no polling station should have to <a href="http://eci.nic.in/eci_main1/the_function.aspx">manage more than 1,500 voters</a>. </li>
<li>10 million people will be working. Elected officials, army soldiers and temporary workers are among the workforce running the logistics behind the elecions, reports the <a href="http://www.csmonitor.com/World/Asia-South-Central/2014/0407/India-s-election-Five-questions-on-the-world-s-largest-democracy-video">Christian Science Monitor</a>.</li>
<li>Special "flying squads" have been set up to monitor campaigns and ensure that there isn't any bribing of voters with cash, alcohol, and even prescription medication, reports <a href="http://timesofindia.indiatimes.com/home/lok-sabha-elections-2014/news/Flying-squads-to-check-campaign-vehicles/articleshow/33358149.cms">the Times of India</a>. These flying squads will be made up of administration officials from various districts and will also keep tabs on campaign vehicles.</li>
<li>In Gujrat's Gir Forest, officials set up a voting booth, manned by five people for just one voter, Mahant Bharatdas, according to <a href="http://india.blogs.nytimes.com/2012/12/06/in-gujarats-gir-forest-indias-most-privileged-voter/">the New York Times</a>.</li>
</ul>
The elections are already underway and are expected to wrap up on May 12.

8 Incredible Facts About India's Massive Elections

It’s been a dream run for stock investors in the past few weeks. The fireworks started by Narendra Modi’s emphatic victory have made investors richer by Rs 11,57,200 crore. But many believe the best is yet to come. Market experts and analysts have proclaimed that this is the start of a multi-year bull run. Morgan Stanley’s Ridham Desai insists in a report that “the Indian market is moving from a cyclical downturn to a structural upturn”. 
 
The only thing that sets brokerage houses apart right now is the degree of their optimism. CLSA believes that over the next 12-24 months, the Sensex will touch 39,707, an upside of nearly 60% from the current level. Brokerage firm Motilal Oswal sees the Sensex touching 50,000 in the next three years. Karvy Stock Broking is more bullish and pegs the Sensex at 1,00,000 by 2020. 
 
ET Wealth reached out to experts from diverse areas of the financial services industry and sought their views on where the markets are headed and what should investors do now. Most of the experts we spoke to feel that the stock markets are on the cusp of a structural bull run, a market rally that could last for several years. After nearly six insipid years, investors can finally feel excited about their stock investments. 
 
What has changed 
 
What’s behind this overbearing optimism? The euphoria is primarily due to the overwhelming mandate to a political outfit widely recognised as reformist and development-oriented. For the first time since 1984, a single party has got absolute majority in the Lok Sabha. This means no more pandering to the whims of a motley group of political allies. “The big change is that we have a pro-development government with a majority, which gives it the power to execute. The positive results of this over the next 5-10 year period can be dramatic,” says Dinesh Thakkar, founder chairman and MD, Angel Broking. 
 
Analysts expect the new government to undertake sweeping reforms which will remove the hurdles to economic growth. “If the government can change even half the factors plaguing the Indian economy, we are in for structural bull market,” says Nitin Jain, CEO, Capital Markets, Edelweiss Broking. 
 
Should you invest more in stocks? 
 
If equity markets are expected to deliver handsome returns in the years to come, should investors make tactical changes in their asset allocation and invest more in stocks? Most experts believe so. Given the strong shift in sentiment and expectations of a structural bull run, many brokerage houses and fund managers are now recommending a tactical change in the asset allocation in favour of equities. Should you bite the bait? “Investors must certainly enhance their allocation to equities if they haven’t done so already,” insists Sandesh Kirkire, CEO, Kotak Mutual Fund. 
 
While a strategic allocation requires that you set specific allocation percentage to each asset class, a tactical allocation allows for a range within which asset mix may be maintained. So if your current strategic allocation requires you to maintain equity exposure at 50%, a tactical allocation strategy will allow you to increase your allocation up to 60%. This strategy essentially implies timing the market by deliberately hiking allocation towards equities at an opportune time. It may require that you step out of your comfort zone. 
 
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Not everyone is comfortable with this approach of tweaking the asset allocation in favour of equities. “An investor’s portfolio takes into account several factors, including his age, life-stage, risk profile, horizon for financial goals and macro economic factors. He should not tweak his asset allocation just because one of these factors has changed,” says Amit Kukreja, financial planner and founder of Wealth Being Advisors. 
 
His views are echoed by Jayant Pai, financial planner and head of marketing, PPFAS Mutual Fund. “Investors who indulge in ‘tactical changes’ at the drop of a hat are only traders who are deluding themselves. Changes should be undertaken either closer to the goal or on a fixed date every year. They should not be influenced by the level of the indices,” he says. 
 
Some investors would argue that the stock markets have already run up quite high and cannot afford much upside from current levels. However, experts insist that there is ample scope for an upside. “We believe investors should hold their nerve and increase their allocation to equities even now. This is because equities may be at an all time high, but valuations are nowhere near the previous peaks,” asserts Harsh Patwardhan, executive director and head of equities, JP Morgan Asset Management (India). 
 
Other experts also feel that investors should not try to time the markets. “Investors who are in a dilemma given the recent surge in valuations should focus on the long term prospects of the economy. Using the SIP route offered by mutual funds helps in maintaining discipline while managing the pitfalls of market volatility,” says Harshendu Bindal, President, Franklin Templeton Investments (India).

Should you invest more in stocks on bull run optimism?

<div class="KonaFilter image-container display-table float_right"><div><div class="image">REUTERS/Amit DaveSupporters of Hindu nationalist Narendra Modi, the prime ministerial candidate for India's main opposition Bharatiya Janata Party (BJP), shower confetti from atop a bus in the western Indian city of Ahmedabad.</div></div></div>Good morning! Here's what you need to know.
Modi Landslide. They're still counting the roughly 800 million votes in India. But the <a href="http://www.businessinsider.com/modi-wins-india-election-landslide-2014-5">exit polls are signaling</a> that India's opposition leader Narendra Modi will be the country's next prime minister in what will be a landslide victory. Modi is widely considered the man with the vision to get India's economy humming again.
The Importance Of A Landslide. "We considered a decisive majority as probably the best scenario, or our bull case for the market," <a href="http://www.businessinsider.com/importance-of-modis-decisive-victory-2014-5">wrote Morgan Stanley's Ridham Desai</a>. "This election result could herald a sea change for India's economy, which has struggled with stagflationary-type conditions over the past few years. We think the incoming government will have to de-anchor inflation, raise capital productivity, improve the investment climate and de-lever private balance sheets to engineer a new growth cycle."
Markets Are Mixed. At one point, India's Sensex index had surged 6.1% to an all-time high. It has since settled up 0.9%. In Asia, Japan's Nikkei closed down 1.4% and Hong Kong's Hang Seng closed down 0.1%. In Europe, markets are trading modestly lower with Britain's FTSE 100 down 0.3%, France's CAC 40 down 0.4%, and Germany's DAX down 0.7%. U.S. futures are slightly in the red.
Smart Money Have Switched To Verizon. The big institutional investors disclosed their big investments via 13-F filings with the SEC on Thursday afternoon. "Billionaire investors Warren Buffett, Daniel Loeb and John Paulson made a connection on Verizon Communications Inc. as their firms separately picked up stakes in the telecommunications firm amid a wave of deal-making in the sector," reported the <a href="http://online.wsj.com/news/articles/SB10001424052702304908304579564403233692292">WSJ's Anupreeta Das and Juliet Chang</a>. During the reporting period, Buffett's Berkshire Hathaway and David Einhorn's Greenlight Capital dumped shares of GM.
An Uber Valuation. Car-service app Uber could be worth over $10 billion, reports <a href="http://www.bloomberg.com/news/2014-05-15/uber-said-to-be-in-funding-talks-for-more-than-10b-value.html">Bloomberg's Serena Saitto</a>. Management "is in talks to raise new financing in a round that may value it at more than $10 billion, according to people with knowledge of the situation," wrote Saitto. "Uber is discussing raising less than $1 billion with new private equity investors, said one of the people, who asked not to be identified because the information isn't public."
JC Penney's Comeback. Shares of the beleaguered department store chain exploded on Thursday afternoon after the company reported its <a href="http://www.businessinsider.com/jc-penney-is-surging-after-hours-2014-5">Q1 financial results</a>. The key metric appears to be same-store sales, which jumped 6.2%, beating expectations for a 4.2% gain. "JC Penney is sucking in a good bit of mall traffic via a combination of effective promotional messaging (we are seeing more consistent promotions in the store, not intra-quarter spikes in worrying "% off signs" as was evident during the holidays), better in stocks on name brand merchandise and basics, and stores that are finally cohesive in terms of layout (home department finagling has concluded)," said retail analyst <a href="http://beluscapitaladvisors.com/">Brian Sozzi of Belus Capital Advisors</a>.
Eurozone Trade Balance. The Eurozone's trade surplus expanded to €17.1 billion in March from €14.2 billion the month prior. This was stronger than the 16.0 billion euros forecasted by economists. "The trade balance is mainly helped by a healthy surplus in Germany and the Netherlands," noted Pantheon Macroeconomics' Claus Vistesen. "The biggest surpluses for the eurozone are recorded with the US and UK and the surplus with the UK is now higher than with the US. Given the lagged effects of a stronger EURUSD, we would expect the trade balance relative to the US gradually to come under pressure this year, but so far the UK is picking up the baton."
An Update On The Housing Market. Economists estimate the pace of starts climbed 3.6% to 980,000 in April as while permits climbed 1.3% to 1.010 million. "Building permits for single family homes, although higher in March, are still running below the pace of single family starts," said BofAML economists. "We therefore think the risk is that single family starts slip to better match the rate of permits. This would also be consistent with the weak signal from the NAHB housing index and sharp drop in single family new home sales. It appears that the spring selling season has kicked off to a slow start. Multifamily starts are likely to improve, although the data are extremely choppy on a monthly basis." The report will be published at 8:30 a.m. ET.
An Update On Consumer Confidence. Economists estimate the preliminary estimate of this sentiment index climbed to 84.5 in May from 84.1 in April. "Our forecast would be close to the cycle high (July 2013 at 85.1)," said Credit Suisse economists who forecast an 85.0 print. "The revision to the final April reading suggests sentiment improved steadily through the month of April, so May has the wind at its back. Positive headlines from the May employment report should also be supportive." The report will be published at 9:55 a.m. ET.
Keep An Eye On Rates. The big market story these days is arguably what's happening in Treasury securities. The yield on the 10-year Treasury note continues to tumbled despite Wall Street's expectations for it to rise. Currently its at 2.49%. "If we go down [more] on Treasury yields, we will see one of the biggest short-covering scrambles of all time," <a href="http://www.businessinsider.com/gundlach-warns-of-treasury-short-covering-scramble-2014-5">said bond fund manager Jeffrey Gundlach</a> on Wednesday in San Diego.

10 Things You Need To Know Before The Opening Bell

<div class="KonaFilter image-container float_right"><div class="image on-image">Reuters</div></div>Elections are underway in India and results are due May 16.
Many expect opposition leader Narendra Modi to become India's next prime minister and there's hope he could help revive economic growth in India which has been languishing.
Modi has been credited with driving Gujarat's economic growth since he took the helm as chief minister of the north west Indian state in 2001.
Modinomics: The Gujarat story
In a report published in September last year, Vijay K. Gaba at InvesTrekk wrote that "India is struggling with the limitations of the Nehruvian model of economic development that we have followed since independence." 
He described the current model as one that general calls for a large role of the private sector, but with "active state intervention during extremities of business cycle and argues against higher savings in both private and public sector." Modinomics on the other hand supports a free market with minimal state intervention.
<a href="http://www.ft.com/intl/cms/s/0/daa87f88-ae0e-11e3-974d-00144feab7de.html#axzz2yVF5E74I">David Pilling at the Financial Times</a> also recently wrote of Modi's getting-things-done leadership style. "Part of Mr Modi's attraction is that, by sheer force of will, he may be able to override some of the checks and balances of Indian democracy and introduce some of the clear-headedness of growth-driven China," he wrote.
Gujarat's real GDP has climbed 10.3% year-over-year between fiscal year (FY) 2003 and FY12, that's 2.4 percentage points above India's real GDP growth in the same period, Christopher Wood at CLSA pointed out in a note late last year.
Modi's candidacy is "about marketing the impressive track record in Gujarat over a 12-year period of achieving broad-based growth across the agricultural, manufacturing and service sectors since Modi assumed office…" Wood writes. 
"Modi's best chance of winning convincingly is if he can tap, helped by the intelligent use of social media, 'big data' and the like, the pro-growth aspirations of an estimated 149m young voters who will be voting for the first time in next year's general election, representing about 20% of the electorate.
Last year, Goldman Sachs put out a note titled <a href="http://www.businessinsider.com/goldman-report-angers-indian-government-2013-11">'Modi-fying our view: raise India to Marketweight'</a>. Timothy Moe, author of the note cited six key reasons for this, the top being, ""optimism over political change, led by BJP's prime ministerial candidate Mr. Modi, is dominating economic concerns," sparking outrage in India.
Is it all just hype? 
But some legitimately wonder if Modinomics will work for the rest of India and if Modi has been too generous in slathering on this self-praise.
<a href="http://www.theguardian.com/commentisfree/2014/mar/13/modinomics-narendra-modi-india-bjp">The Guardian</a> and <a href="http://qz.com/171409/gujarat-by-the-numbers/">Quartz</a> took a long look at Gujarat's economy in the years before Modi came to power, and found that Gujarat was doing well in the two decades before Modi came to power. And certain indicators like foreign direct investment, show that Gujarat actually lags other states.
There are also those that argue that placing the blame of recent lackluster growth squarely on the shoulders of the central government is too simplistic.
"The belief in certain quarters is that as long as the next government were to go all out at de-bottle-necking projects, sentiment would surge and this would spark an investment revival in the economy," writes Toshi Jain at JPMorgan. But he thinks this is an "overly-simplistic read on the situation" because many stalled projects have more to do with various state governments than the central government. Perhaps then, a Modi government would also hit the same roadblocks.
<div class="KonaFilter image-container float_right"><div class="image on-image">AP Photo/Manish Swarup</div></div>Modi can't shake his past 
There is of course one thing that Modi has never been able to dodge, questions surrounding his role in the deadly Gujarat riots of 2002, in which over 1,000 people were killed, women raped, and thousands displaced.
Modi's detractors also point to his ties to the Rashtriya Swayamsevak Sangh (RSS) a Hindu supremacist group.
Nomura's Alastair Newton points out that on a February 23 rally in Assam, Modi called for Hindu migrants from Bangladesh to be assimilated back into India. He also said non-Hindus should be sent back to their home nations. Modi's rhetoric has raised concerns about what this could mean for neighborhood politics. <a href="http://www.livemint.com/Opinion/VPNxrUuYeE4eSiC6nIF7NM/The-symbolism-of-Varanasi-in-2014.html"></a>
<a href="http://www.livemint.com/Opinion/VPNxrUuYeE4eSiC6nIF7NM/The-symbolism-of-Varanasi-in-2014.html">Indian publication LiveMint</a> also pointed to Modi's decision to contest the seat in the holy city of Varanasi as a sign that he hasn't abandoned his Hindu supremacist ideology: 
"It is widely expected that Modi's nomination from Varanasi will positively affect the outcome for the BJP in a number of other seats in Eastern Uttar Pradesh and Bihar which are electorally important as together the two states send 120 lawmakers to the Lok Sabha. Further, the choice of Varanasi is also symbolic in nature which indicates that the party may not have completely abandoned the Hindutva ideology."
It's a guessing game 
For now the polls are calling for a BJP (Bharatiya Janata Party) and NDA (National Democratic Alliance) coalition, winning 230-240 seats and headed by Narendra Modi. But Indian polls have been woefully wrong in the past. 
In 2004, the polls grossly overestimated the seats the incumbent would win and the Sensex crashed 11% the day after, and the rupee lost 3%. In 2009, the polls underestimated the seats the incumbent would win and the following day stocks went on a tear and the rupee surged 4%.
The bottom line however is that whichever party comes to power, they have a long road to reviving economic growth. Morgan Stanley's Ridham Desai thinks the new government needs to <a href="http://www.businessinsider.com/india-sees-worlds-biggest-election-2014-4">push through five key reforms</a>. Drive wage growth in line with productivity, cut the fiscal deficit, improve the business environment, rethink India's urbanization policy, and address structural rigidities in the energy and mining sectors.
If the rise of what's been <a href="http://www.businessinsider.com/why-indian-2014-elections-matter-2013-9">dubbed India's third front</a>, a string of regional parties, does end with a messy coalition, the Indian economy could continue to sputter for another five years.

Everything You Need To Know About 'Modinomics' The New Economic Strategy That Could Be Coming To India

NEW DELHI: As we inch closer to the Budget 2014, Dalal Street is abuzz with expectations of strong pro-growth reforms from Finance Minister Arun Jaitley. 
 
Given high expectations from the government, all attempts are expected to be made to present a comprehensive Union budget. However, the residual period until the next Budget to be presented is relatively small. 
 
Experts feel that the focus of the new government would be more on creating opportunities for retail investors in financial markets. But it is definitely not going to be a cakewalk for them. 
 
“The budget itself is not going to be a cakewalk. In fact, it is going to be a tight rope walk for the government,” said Killol Pandya, Senior Fund Manager-Debt, LIC Nomura MF. 
 
“The economy has certain structural and macro issues which it is facing and the government will be at pains to balance putting our growth story back on track while battling the inflation bugbear,” he added. 
 
The fact is that most of the steps which the government can take to promote growth and kick start the economy will have short-term inflationary ramifications. However, in terms of market performance, analysts see the markets rallying nearly 5-6 per cent in the run-up to the event. 
 
 
 
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Traders carried forward bullish futures bets to the July series on the expiry of the June contracts on Monday on expectations the market could rebound in the run-up to the Union Budget on July 10. 
 
Fresh build-up of positions in Nifty options suggests the benchmark index could gain about 5-6% by the Budget day from the current levels, said an ET report. 
 
Most analysts are of the view that despite escalating tensions in Iraq and depreciating rupee, Indian markets should be able to scale higher from the current levels, supported by strong FII flows and as most of the oil, which is imported, comes from the southern region, which remains unaffected. 
 
“The overweight by international investors in India will be highest in the whole emerging market space and we think it will continue. We think there is a re-rating going on in India,” said Hans Goetti, Head of Investment Asia, BIL. 
 
“We think if there is a new earning cycle start on the back of a stronger economy, then it can grow at about 6.5 per cent for several years, accompanied by higher prices in the equity markets,” he added. 
 
History suggests that the Union Budget’s influence on the market’s short-term performance is declining, but the next budget could still leave a trail of impact. 
 
The upcoming budget could be important because of where India is placed cyclically, what the mandate for the government implies and because this is the first non-Congress government in a decade, say experts. 
 
“Though history suggests that the budget’s influence on short-term performance is declining, expectations (measured by pre-budget performance) are still important in deciding what the market does after the budget,” said Ridham Desai, India Strategist at Morgan Stanley, in a report. 
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“If the pre-budget returns are positive, there is a 90% chance that the post-budget returns are negative,” he added. 
 
We have collated a list of ten stocks which investors can look at ‘buying’ ahead of the Budget 2014, for the next 12 months: 
 
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	Brokerage Firm: BofA-ML 
 
 
Titan Company Ltd: Target price set at Rs 406 
 <keyword id="10899" type="CITY" weightage="40" keywordseo="Titan-Industries">Titan Industries</keyword>, a Tata Group company, is India’s leading watch and jewelry retailer. Titan’s growth can pick up in FY15/16E as SSSG in jewelry bottoms out. This can be led by a favorable macro: easing inflation, possible pick-up in the urban job scenario and wage hikes. 
 While resumption of the sale of <keyword id="18712" type="ENTERTAINMENT" weightage="40" keywordseo="Gold">gold</keyword> coins can improve operating leverage, possible margin benefits due to focus on premiumization in jewelry as well as watches can boost earnings. 
 
ICICI Bank Ltd: Target price set at Rs 1,850 
 
The global investment bank is bullish on ICICI Bank as it has built a strong retail franchise to complement its corporate banking activities and capitalize on the fast-growing retail market. ICICI Bank has expanded distribution to 3,500 branches, allowing it to acquire customers at a very rapid pace and also gain share. 
 
The bank enjoys a strong capital position (Tier 1 at 12.8%), and is well placed to manage credit cycle/regulatory changes and deliver earnings growth of 16-22% through FY15/16. Outperformance should be driven by: 1) Op. efficiency (CI ratio improving to lesser than 38-39% in FY15/16 vs 41% in FY13); and 2) Credit cost at 80bps. 
 
Maruti Suzuki Ltd: Target price set at Rs 2900 
 Maruti Suzuki (MSIL) is a subsidiary of <keyword id="111052" type="CITY" weightage="40" keywordseo="Suzuki-Motor">Suzuki Motor</keyword> Corp, Japan. Set up in 1983, MSIL is presently India’s largest passenger car company which primarily sells compact hatchbacks (65% of volumes), vans and upper sedans. 
 
MSIL is our top pick in the Indian autos space, being best positioned to ride the country’s consumption recovery theme due to its rich product pipeline over the next three years. 
 
The stock deserves a valuation premium due to superior growth prospects (31% EPS CAGR over the forecast period) and also because it is the sole listed proxy in the domestic car industry. 
 
<keyword id="111992" type="CITY" weightage="40" keywordseo="Oil-India-Ltd">Oil India Ltd</keyword>: Target price set at Rs 694 
 
Oil India (OIL) is a state-owned (67.6% stake) E&amp;P company with only onshore production and exploration mainly in north-east India. This region accounts for its entire crude oil and most of its gas production and reserves. 
 
Gas price hike drives a 41-59% YoY rise in FY15E EPS at a gas price of US$6.8-9.0/mmbtu. A rise in oil price net of subsidy drives 34-70% YoY growth in FY15E EPS. FY15E EPS would rise by 60-114% YoY if the prices of both oil &amp; gas increase. 
 
Risk-reward ratio is evenly balanced with the worst-case fair value implying around 30% potential downside, and the best-case fair value implying a potential upside of 16-39%. 
 
Voltas Ltd: Target price set at Rs 282 
 
Voltas, a Tata Group company, is India’s leading air conditioning and engineering services company. It operates in India through an extensive dealer and service network. Cyclical recovery in macro will drive stronger consumer discretionary sales, ie AC. 
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There will better construction demand as well. Sharp expansion of margin led by favourable product mix change will be drive 80% of the 27% earnings CAGR in FY14-17. The stock is cheaper relative to peers and is likely to rerate along with stronger growth. 
 
Analyst: S Ranganathan of LKP 
 
Dishman Pharma: Target price set at Rs 160 
 
Dishman Pharma is an integrated global outsourcing partner in CRAMS for innovator drug companies and derives close to 65 percent of its 1400cr revenues from CRAMS with marketable molecules forming the balance 35 percent of its revenues. 
 
With all its capital expenditure behind, the company has forward integrated its Vitamin-D facility and with a 24 percent sustainable EBIDTA margin we believe that it is now focused on de-leveraging its balance sheet having a debt of 850 cr. 
 
We recommend a BUY on the stock trading at 8x the current year's expected earnings with a price objective of 160. 
 
Zensar Technologies Ltd: Target price set at Rs 500 
 
Zensar Technologies is a Rs 2300-cr software company of the RPG group, which derives two-third of its revenues from ETS (enterprise transmission solutions) and one-third of its revenues from IM (infrastructure management). Zensar has the largest Oracle practice business in India and has a strong focus on digital transformation, which is primarily a consulting-oriented business. 
 
The company has consistently grown at a CAGR of more than 20 percent over the past 5 years both on top-line and bottom-line. Zensar (a debt-free entity) with a sustainable EBIDTA margin of more than 30 percent is well on its way to post a net profit of close to Rs 300 cr this fiscal. BUY with a price objective of Rs 500. 
 
ITNL: Target price set at Rs 250 
 
ILFS Transportation Network Ltd is a leading surface transportation infrastructure company belonging to the ILFS group. We believe that ITNL is the best proxy to play this theme not only in India, but also outside India and could be a prime beneficiary of the road development projects. 
 
This business is highly capital intensive and hence the high debt equity of 3x. ITNL with its 6500cr revenues is well placed to capitalize on the large addressable opportunity as it has attractive EBIDTA margins of 30 percent. Buy ITNL with a price objective of Rs 250. 
 
Escorts Ltd: Target price set at Rs 160 
 
Escorts with business interests in agricultural equipment, construction and railway equipment is the third largest player in tractors and is now launching new products in the mid to heavy segment of tractors and is aggressively foraying into the southern parts of the country where it lacks presence. 
 
The monsoon, although delayed, is expected to gather momentum in the next 3 months, which would also act as a positive trigger for the stock in the coming quarter. ESCORTS trading at 6.5x historical earnings should be bought with a price objective of 160. 
 
Federal Bank: Target price set at Rs 160 
 
Federal Bank was punished rather unjustly for its aggressive lending to the SME sector where it has seen fast traction and we believe that the markets have now factoring in the fact that its asset quality continues to be good with net NPA at 0.74% and provision coverage at a very healthy 84%. 
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The bank has a very healthy CASA of more than 30% and net interest margins are at a healthy 3.3% with branch expansion happening at a faster clip ( it now has 1175 branches) 
 
A quality private sector bank with an able leader available at a compelling price to book of 1.5x should be bought for a price objective of Rs 160. 
 
(Views and recommendations expressed in this section are the analysts’ own and do not represent those of EconomicTimes.com. Please consult your financial advisor before taking any position in the stocks mentioned.)

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